Nova Scotia apparently has, or is facing, a structural deficit. Who knew? Well, everyone really, and we have known for quite some time. We have known for years that spending was growing faster than inflation, sometimes two, three and four times faster. We also know that when government starts to spend, it is very, very, very hard to stop, primarily because we (the people) make it hard. After all, once that government contract is in place or that service starts to flow, who wants to see it go away?
Unfortunately, we also knew that a larger and larger portion of our annual provincial budget was made up of revenues from the offshore (whether royalties or offset payments) and transfers from the federal government. And we all know that the gas and oil is a “non-renewable” resource. When it is gone, it is gone. As for transfers, we know from painful and recent experience that those, too, are fickle and not to be trusted.
And so, the result is a “structural deficit,” which basically means that we spend more money than we take in and we will continue to do so for the foreseeable future. So, while we are not “broke” because people are still willing to lend us money and we can still make the payments, we are “robbing Peter to pay Paul” — Peter being in this instance our kids and grandkids, and Paul being variously past, present and future public servants and politicians, and anyone who has loaned the province money.
Now, Premier Darrell Dexter has urged us to engage in a balanced conversation about how to solve this problem. And for that, he should be applauded. However, I do wish to take issue with his definition of balance. The government has offered us two choices, or a combination of those two: program cuts and/or tax increases.
On the face of it, this seems fairly balanced. We either cut spending or increase revenues. Indeed, had the options been expressed in these terms, I would not be writing this piece.
The problem is that tax increases and increasing tax revenues are not synonymous. Increasing tax rates can actually reduce total tax revenues (as people will engage in more tax avoidance activities, like moving their money or themselves elsewhere). On the flip side, though, it is also true that there are lots of ways to increase tax revenues without increasing taxes. This linkage exists on the spending side, too. Cutting spending can actually hurt provincial revenues, while increasing spending can help them.
So, I challenge Premier Dexter to redefine the balanced conversation. We need to consider not only where to cut spending and increase taxes, but also where to decrease taxes and increase spending.
A couple of examples might help to clarify what I mean.
Income taxes are a tax on jobs; the HST is a value-added consumption tax. A consumption tax doesn’t care where your money comes from, income or inheritance. And it also is a progressive tax, in that the more you have, the more you spend and the more tax you pay. Increasing the HST while decreasing personal taxes makes sense, especially if we ensure that significant relief is delivered to two groups: those who need it most (generally low-income Nova Scotians) and those whom we need the most (generally young professionals, preferably with kids).
On the spending side, the evidence of hardship among our working poor and our physically and mentally challenged populations is hard to dispute. Increasing the support we give them makes sense. They will not save this money but spend it, making their lives better and increasing economic activity in their communities.
At the same time, reducing clawbacks on what money they can earn in part-time or entry-level jobs and extending the timeframe in which they can both receive government support and earn income makes perfect sense. The longer we can keep them in the workforce, the greater their attachment to the workplace, and the higher their skill level becomes — making them better, more productive, more participating members of society and making that second job more likely, more lucrative and more attractive.
This doesn’t mean we have no “fat” to cut or that programs not necessarily considered to be “fat” shouldn’t go as well. We spend $9 billion a year in a province of less than a million people. There are savings to be had. But it does mean that an approach that only considers where to cut and what to tax will be a failure — a failure that we cannot afford.
Charles Cirtwill is president and CEO of the Atlantic Institute for Market Studies ( www.AIMS.ca), an independent, non-partisan public policy think tank based in Halifax.